Question

Scam

Forum|Forum|1 year ago
October 16, 2024
2 replies
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I paid over 24k to a company for what was supposed to be for debt consolidation. Years later i found out that the company, LPG Financial did nothing with my det along with many others and just pocketed our monies. They have since filed for bankruptcy. As such I (along with many others) are out all of the monies that were paid and still left with the original debt and lawsuits associated with that debt. Is there anything in the current tax laws that will allow for this type of scam/situation to be factored into income tax filings.

Employee

Employee

That's complicated. If it is theft, the answer is no, because theft losses are disallowed for 2018-2025 unless in connection with a declared disaster. If it is a non-business bad debt, it is a capital loss you can deduct against other capital gains.

https://www.irs.gov/taxtopics/tc453

https://turbotax.intuit.com/tax-tips/irs-tax-return/how-to-report-non-business-bad-debt-on-a-tax-return/L1mUzQFtB

https://www.grfcpa.com/resource/bad-debts-what-losses-can-you-deduct-and-when/

The problem is that the IRS can be skeptical of bad debt losses. There was a tax court case over forged paintings, that turned on whether it was theft (fraud) or just a bad investment, and the ruling was that for it to be theft, there must be a thief who benefits.

So you may need to look to see if this was a legitimate debt reduction company that went out of business, or if it was a scam all along. If it was a scam all along, the theft deduction is not allowed.

Employee

Employee

@Anonymous_ wrote:

@Opus 17 wrote:

.......If it is theft.....

Theft is the unlawful taking of property or money from another with the intent to permanently deprive the owner of that property.

This is not theft since @kklein2092 voluntarily paid the firm for services to be rendered. In order for it to be theft, the initial taking had to be unlawful with the intent to provide no services at the outset; that does not appear to be the case.

Agreed. However, @kklein2092 used the term "scam", and we don't know the history of the company, whether they have been the subject of lawsuits or prosecutions, etc.

If it is not theft, then the non-business bad debt deduction probably applies.